How does Amazon FBA work?

How does Amazon FBA work?

A lot goes into running an e-commerce company. Regardless of what products you sell and how you source them, you likely have a lot on your plate. 

From developing your product to managing your business’ finances, you may not have the time to manage inventory. Whether you’re already selling on Amazon or you’re considering signing up, there is a solution: Fulfillment by Amazon (FBA) that you need to think about. 

Selling through Amazon FBA is pretty straightforward, but it’s also a powerful process that can help your online business grow. It eliminates the need for you to invest in warehouse facilities and staff.

Instead, with Amazon FBA, Amazon stores your goods in its warehouses and ships the products you sell on their platform on your behalf. 

The process involves storing, packing, and shipping orders, as well as handling, returns, and exchanges.

How it Works

First, you or your supplier sends your listed products to an Amazon fulfillment center. 

There are some logistics to think about here. You will need to label the products. You can either do this yourself or through the Amazon FBA label service. Then, you ship your inventory either through Amazon or with a carrier of your choice.

Next, when your inventory gets to the warehouse, Amazon scans the label you attached, weighs and measures each pack, and stores it for you. You can use online inventory tracking to stay on top of your stock, and you can ship more inventory to the center when necessary.

When a customer orders your product, Amazon does the rest. They then take care of picking the product from inventory, packing it for shipping, and sending it to the customer. After the order has been placed, they’ll also take responsibility for customer service.

Benefits of Using FBA

    • Easy Shipping and Logistics. Amazon does all the hard work for you. You just need to keep track of your listings, make sure they’re stocked, and the fulfillment is taken care of from start to finish. 
    • Discounted Shipping Rates. Because you’re working with Amazon, you’re also going to spend less on your shipping costs through the FBA platform. Even though you’re still paying fees, they are often lower than managing your own shipping and fulfillment in-house. 
    • Return Management. FBA also handles returns and refunds as part of the fulfillment process. 
    • Customer Service Management. Amazon offers its own customer service for FBA sellers. 
    • Fast Delivery and Amazon Prime. Products under FBA automatically get the Prime badge and are eligible for Prime free shipping (to the customer) and shipping times. 
    • More Storage Space. With Amazon FBA, you have access to unlimited storage space – for a cost – because Amazon has warehouses around the world.
    • Multi-channel Fulfillment. You don’t need to sell just on Amazon to benefit from the FBA program. It allows you to also sell your products on different marketplaces while still having Amazon fulfill them.

 

Costs

When calculating the costs of using Amazon FBA, there are different categories of fees you should consider. From small standard size to large, prices range from $2.16 to $5.68 per unit.

General Fulfillment Fees – You’ll mainly be dealing with these fees, which depend on the size of your product and its shipping weight.

Storage Fees – Amazon charges you money based on how much space you take up in the warehouse. Your storage fees depend on the season and are based on the volume (cubic feet) you occupy, and you’re charged every month. Standard size starts at $0.75/cubic foot, from January to September, and can go up to $2.40/cubic foot, from October to December.

There are also other fees you should be aware of. If you send your inventory to an Amazon warehouse without the proper labelling or preparation, they’ll fix it and charge you accordingly. Also, if your inventory stays in the warehouse unsold for longer than 365 days, you’ll be charged long-term storage fees. Alternatively, you can ask Amazon to return it and pay the removal orders fee.

Time to Grow

Using Amazon FBA means more time to grow your business. By handing the fulfillment responsibilities to Amazon, you give yourself more time to improve and scale your business. 

However, while Amazon FBA allows you to focus on your business growth, you may not yet be in a capital position to do that.

To expand your operations and increase your product offering, you may require additional working capital. If you lack the working capital to implement your growth plans, you can quickly slip into a downward spiral that can cost you your business.

At Yardline, we support e-commerce businesses by providing growth capital to help them reach and exceed their goals. 

Get in touch with us today if you’d like to know-how.



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